A SECOND home — it’s a dream come true, right? Unfortunately, some first-time buyers make rookie mistakes that can turn owning a vacation house into a nightmare. Here are a few tips to avoid them.
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DON’T SIMPLY BUY
where you love
“Many people love spending a week each summer at a particular beach,” said Jeff Haden, author of “The Second Homeowner’s Handbook: A Complete Guide for Vacation, Income, Retirement, and Investment” (Atlantic Publishing, 2006). “But when they buy a home and start to spend several months a year in the area, they realize that traffic is a mess, shopping is limited, and seasonal factors like the influx of students at a nearby college change the feel of the area.”
To avoid that problem, Craig Venezia, author of “Buying a Second Home: Income, Getaway or Retirement” (Nolo, 2007), recommends renting for a few seasons before you buy.
“There’s no rush to buy a second home, that’s the beauty of owning one,” he said. “It’s truly a luxury to you, so you can take the time to get to know the area.”
One thing you should get to know is how long a trip you’ll be making.
“The rule I always say is more than a two-hour drive is cumbersome for a weekend,” Mr. Venezia added. “You don’t want to spend an entire weekend getting to your weekend getaway.”
KNOW WHY YOU’RE BUYING
“People don’t take a step back and think about why they really want to buy this home,” Mr. Venezia said. “There are all kinds of factors: as an investment property, a personal getaway or as a place you’ll ultimately retire to. Those factors cross one another, but if you know the single reason, then that’s going to drive where you buy, the type of house you buy, and whether you’ll rent it out.”
For example, if you determine that your getaway is going to be your eventual retirement home, you’ll want to think about accessibility and the proximity of health care facilities.
SECOND-HOME FINANCING
is different
“Getting a loan on a second home has always been more difficult,” Mr. Venezia said, adding that such loans can carry a higher interest rate than one for a primary residence.
“Don’t assume your current lender is your best bet for financing,” Mr. Haden said. “Different lenders have different standards for mortgages on second homes.
“Plus, whether you’ll rent the property some of the time is a factor as well; standards for what qualifies as an investment property vary greatly between lenders.”
The bottom line is that you should do your financial research, get help with your potential tax benefits (which can get complicated), and don’t stretch yourself too thin — or you will pay for it.
“Think about all your other expenses,” Mr. Venezia said, “not just on the primary home and daily expenses, but savings for retirement and your kids’ education. Are you going to be able to do that and have a second home, or are you going to be tapping into those things?”
EXPECT HIDDEN COSTS
“Most people don’t factor in the cost of a caretaker when they are putting their numbers together,” Mr. Haden said. “They assume they’ll love the house so much they’ll be there every weekend — and it almost never turns out that way.”
Those who plan on renting out their property can be in for some surprises, too.
“People don’t realize the time and money needed to rent a place out, whether you’re doing it on your own or going through a management company, which adds to your fees,” Mr. Venezia said. “So think about how much you’re going to rent it out, and how you’re going to go about doing it.”
PLAN AN EXIT STRATEGY
Finances aren’t the only reason you might need to divest yourself of your vacation spot.
“Just think about if things change,” Mr. Venezia said: “You buy a second home, and a month later you find out your company’s transferring you. What do you do?”
Whether you then decide to rent it or sell it, some forward thinking can help determine where and what kind of property you buy.